An Overview of the Oil Industry Chris Bayci Mary Snyder Gang (Ross) Zhang LIR 554 9/30/08

Overview  Value Chain  Largest Oil Companies  OPEC and World Trade  Oil Prices  American Politics  Employment in the Oil Industry  China’s Quest for Oil

Step 1: Exploration and Production

Step 2: Transporting Oil to the Refinery

Step 3: Refining

Step 4: Transporting Oil to the Consumer Want to know more? Adventures in EnergyAdventures in Energy

Largest Petroleum Refining Companies (as ranked in the Fortune Global 500 in 2008) RankCompany Global 500 Rank Revenues ($millions) Headquarters 1Exxon Mobil2372,824.0Irving, TX 2Royal Dutch Shell3355,782.0The Hague, Netherlands 3BP4291,438.0London, England 4Chevron6210,783.0San Ramon, CA 5Total8187,279.5Courbevoie, France 6ConocoPhillips10178,558.0Houston, TX 7Sinopec16159,259.6Beijing, China 8China National Petroleum25129,798.3Beijing, China 9ENI27120,564.7Rome, Italy 10Valero Energy4996,758.0San Antonio, TX

OPEC  Organization of the Petroleum Exporting Countries  Created in 1960, HQ in Vienna  Objective: co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers  OPEC Member Countries produce about 45 percent of the world's crude oil and 18 percent of its natural gas.  OPEC's oil exports represent about 55 percent of the crude oil traded internationally.  In 2007, the U.S. imported almost 2 billion barrels of crude oil from OPEC of a total of around 3.7 billions barrels (most non OPEC is from Mexico and Canada) Sources: and

OPEC Members Source:

World Trade in Oil Oil: Key players and movements of 2007 Webpage Oil: Key players and movements of 2007 Webpage Source: FT.com

What’s Going on With Gas Prices?  Price of Crude is Rising –Rising World Demand –Supply Disruption Concerns –Concerns about Futures –Crude priced worldwide in American dollars and now the dollar is weak

Political Debate on Oil  Offshore Drilling –Moratorium ends with September –Democrats and Republicans have very different views

Republicans  Lift offshore drilling ban entirely  No windfall profits tax  McCain – The Lexington Project John McCain Campaign Website

Democrats  Compromise with limited offshore drilling  Bill that forces “Big Oil” to give up tax breaks and pay royalties to states  Unconvinced by effect of getting oil 7-10 years from now  Obama – New Energy for America Plan Barak Obama Campaign Website

Employment in the Oil Industry  Construction and extraction ~ 40%  Business ~ 40%  Transportation ~ 10%  Production workers ~ 10 %  Talent Shortage: – Nearly 90% of the senior human resources (HR) executives at 22 top international oil and gas companies believe their industry faces a talent void and call the problem one of the top five business issues facing their companies. »Survey by Ernst & Young and Rice University –Three causes: »Industrial activity at all time high globally »Cyclical business and poor public perception »Baby Boomers are ready to retire - Average age in oil and gas industry is 49

China's Quest for Oil

 How much oil does China consume?  Why did the oil demand increase so quickly?  Where does the oil come from?  Implications for U.S.-China relations

How much oil does China consume?

The oil consumption: China VS. US  US consumes about million barrels of crude oil per day  China consumes a little more than1/3 of the consumption of US.  But China’s oil consumption grows by 7.5% per year, seven times faster than the U.S. Source:

Why did the oil demand increase so quickly?  Mainly because of a large-scale transition away from bicycles and mass transit toward private automobiles –by year 2010 China is expected to have 90 times more cars than in 1990 –projections show that China could surpass the total number of cars in the U.S. by 2030 –

The automobile ownership of US VS. China Automobiles Owned per 1000 People Source:

Where does the oil come from?  China became a net oil importer in 1993 and is growingly dependent on foreign oil.  China currently imports 32% of its oil.  A report by the ”International Energy Agency” predicted that by 2030, Chinese oil imports will equal imports by the U.S. today.

China oil imports  Today, 58% of China's oil imports come from the Middle east  By 2015, the share of Middle East oil will stand on 70%

Implications for U.S.-China relations: Middle East oil will become a key issue

The short-term vs. long-term  In the short term, China and U.S. may maintain good relations and enjoy the economic benefits derived from such cooperation.  In the long run, Chinese leaders feel that the U.S. seeks to dominate the Persian Gulf in order to exercise control over its energy resources and that it tries to contain China's aspirations in the region.  The U.S. is considered a threat to China's long-term energy security.

Any Questions?  Good luck on the Exam!